A large portion of American small business owners are increasing debt instead of sales! Personal debt is also heading in the wrong direction. In 1990, the average American had credit card debt totaled just over $5,000. Today the average is more than $8,000 and the average number of credit cards per household is 7.6. That includes major credit cards, store credit cards and bank credit/debit cards.
If you are a small business owner, research shows that your personally backed debt is much higher than the national average. The American landscape for small to medium size business has never been more competitive but to win in business, you need to first get the financial bleeding stopped.
In our lifetime, there has never been a time when you have been required to do more with less. You are looking at a future paved with cash flow problems or prosperity but not both. You may think that the answer to your money woes is easier said than done, but with the right tools, the right plan, the right people advising you, and the and resolve to make it happen, you can and will find yourself enjoying financial independence once again.
The first step to a new future is to examine where you are now. You need a business success blueprint that will help you start the process of getting yourself back on your feet. It will guide you in your thinking by reviewing where you are now.
You will see that the Blueprint gets you to examine all your debts. As you list each of your debts, consider which ones are caused by business overhead and which ones are created from personal need for income. Also, list whatever lines of credit you have now and also what is available to you. Behind each of these numbers put the percentage of interest each credit source is charging or will charge you.
Next is the Planning Phase. Included in this is the need for a budget. When creating a budget, leave no stone unturned. List all sources of income including regular sales, accounts receivable, 1099 and W-2 paychecks, contract work and any other sources of outside income you may have. This figure will determine how much money you can spend a month without adding to the current debt load.
Gather all financial statements including checking and savings as well as retirement and investment statements. You can determine your average monthly liquid assets with this information. Now that you know how much money you have and how much is coming in, it is time to compare it against how much money is going out. A big part of financial planning revolves around how much is going out of your accounts monthly and where it is going.
Break your outgoing expenses into four categories: fixed personal, fixed business, and variable personal, and variable business. The fixed expenses include those that cover your basic personal and business needs: mortgage or rent, utilities, groceries, car payments, loans, etc. Variable expenses are things like new marketing ideas, advertising or, dining out, entertainment, and so on.
How does your cash flow compare to your expense data? With all four of these expenses, as you list them put a check mark by the ones that are absolutely required. You might be surprised as you do this exercise how many expenses you have that are desired but not required. When I say “required,” I mean which expenses are needed to keep your business open and your lights on!
There is an old financial formula that says, “If your outflow exceeds your income, then your upkeep becomes your downfall!” Simply stated, you need to stop the financial bleeding! In business there is now and always has been only two ways to solve this. The first and best is to increase your sales!
There are several new and interesting ways to increase your sales but this article is about the other step and that is to cut your non-required expenses. If you really do not need the expense, then cut it out now, while you still can. Keep looking for new and creative ways to increase your sales but remember, above all else, KEEP THE LIGHTS ON!